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No 04. Chapter 8
Business Cycle Facts
pp. 276-298 only.
Introduction
This lecture provides more details on business cycle facts We describe more carefully what a business cycle
is We present an organized discussion about facts
that characterize business cycles in the U.S.
What are Business Cycles? Business cycles refer to fluctuations in
aggregate economic activity (real GDP is the “reference” variable).
Characteristics of business cycles Phases of expansion and contraction Cycles occur across multiple sectors/industries at
the same time Variables are related by co-movements Cycles are recurrent, but not regular Cycles are persistent
Figure 8.1 A business cycle
Business Cycle Facts
Business cycles are characterized by similarities in the way that different variables move in relation to each other (co-movements), especially in relation to the reference variable, real GDP.
The description of regular co-movements constitutes what we call business cycle facts.
Characterizing Co-movements
Business cycle facts are best described by characterizing co-movements Coincident, leading and lagging variables Procyclical, countercyclical, acyclical variables The amplitude of fluctuations is also useful in
characterizing business cycle facts.
Business Cycle History
Recession were common before WWI The Great Depression of the 1930s was a
uniquely severe and prolonged cycle From WWII to 1970, there were several
cycles, but these were mild Severe recessions in the mid 70s and early
80s. Mild recessions in 1990-91 and 2000
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Figure 8.2 Cyclical behavior of the index of industrial production
Figure 8.3 Cyclical behavior of consumption and investment
Figure 8.4 Cyclical behavior of civilian employment
Figure 8.5 Cyclical behavior of the unemployment rate
Figure 8.6 Average labor productivity and the real wage
Figure 8.7 Cyclical behavior of nominal money growth and inflation
Figure 8.8 Cyclical behavior of the nominal interest rate
Figure 8.9 Industrial production indexes in six major countries
Where Do We Go from Here?
Business cycle facts suggest regularities that we hope to explain with theory.
The End
